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lora cecere's Blog

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"Lora in your own way, you are helping. You tell it straight. You are pissy and opinionated in this world of supply chain blandness. I find it refreshing."

Quote from a reporter this morning


The term supply chain excellence is easier to say than define. It permeates corporate strategy, but it lacks definition. I have been trying to define it as a supply chain analyst for over fifteen years. For some strange reason, it is a passion.


As a veteran of the go-go days of the hype cycle of Advanced Planning, I advocated that better planning improves corporate performance. As an analyst in the market for the past ten years (first with Gartner, then with AMR Research, followed by my work at Altimeter Group and now with my own firm Supply Chain Insights), I have stood in front of clients doing strategy days advocating "best practices" and I wanted to set the record straight.


When I wrote the book Bricks Matter, I wanted to write a celebratory book on why the adoption of new technologies and practices in supply chain had improved corporate performance. But the data could not support the promise. I wanted it to be data-driven. I had spent the last two decades in the technology market and I wanted to celebrate success. I could taste it. There is too much "yada yada" in the market. (I laughed at the quote this morning...)


So, I built a database of 20 years of supply chain financial ratios to try to find the correlation between the adoption of new technologies and the improvement on corporate performance, but I could not prove my hypothesis. Instead, what I observed when I looked at the data, was that most companies that I had worked with (in my role as an industry analyst, I had worked with over 300) were going backwards on margin and inventory turns. I found that nine out of ten companies were stuck. "Ugh", I said. It was an awakening. As an industry analyst, in prior roles I had never had access to this data. We had always talked about the promise, but not looked at the reality. I believe that companies made progress in projects and drove short-term progress, but that it could not be sustained. I also believe that the rise in complexity eroded many results. (The rise in complexity happened faster than supply chain leaders could improve supply chain performance.) My question was, "What do I do now?"


I believe it in the toes of my feet and the DNA in the cells of my body, but I wanted to prove it. So, this has been my two-year mission. It is my quest.


The Supply Chain Index


Yesterday, I published a report on the first piece of my definition of the Supply Chain Index which we will launch in April. This work is based on a collaborative project with Arizona State University. In this work, we have taken supply chain financial ratio data for all publicly held companies and analyzed the data for strength, balance and resiliency. In the Supply Chain Index, each publicly held company will be given a mathematically determined number for their performance against their peer group (NAICS code) for strength, balance and resiliency.


The formula is:


Supply Chain Index= Strength Ranking + Balance Ranking + Resiliency Ranking +Peer Group Assessment


Strength will be defined as year-over-year performance at the intersection of Growth, and Return on Invested Capital (ROIC).  Balance will be the ability to manage a portfolio of supply chain ratios to maximize market capitalization. Resiliency is the pattern at the intersection of operating margin and inventory turns.  Strength, Balance and Resiliency will each count 30% of the total index with the peer-valuation counting 10%. The members of the Shaman's Circle will weigh-in on the peer rankings.


I am looking at the data for 2006-2013 for several reasons. First, it is based on the belief that supply chain excellence takes many years. In the words of Marty Kisluik of FMC, "It takes at least three years to see results and five years to make it stable." I heard this time-after-time in my interviews for the book Bricks Matter. I am hearing it again in my interviews for the book Metrics That Matter.


It has been a two-year research effort, and we are not done. We have had a lot of twists and turns, and lessons learned. We have stubbed our toes. One of my biggest lessons is that the devil is in the detail. It requires collaboration with great math minds to remove outlier data points, eliminate bias and ensure that we are applying the most current methodologies to the problem. I have loved working with Dr. George Runger and his team and give thanks to Mani Janakiram of Intel for introducing us, and for giving me some candid feedback that we needed deeper analytics help to complete our mission.


Defining Resiliency


Yesterday, I published the report on Improving Supply Chain Resiliency. I define the resiliency measurement as the tightness of the pattern at the intersection of operating margin and inventory turns for the period of 2006-2013. My question for the Arizona State team was, "How do I best define a technique that can represent the randomness of this pattern?" I could see that the patterns were very random for some industries and not for others; and I could also see that the pattern was better for companies that I believed were supply chain leaders. My question was "How can I apply a methodology that would allow companies to measure resilience?"


The ASU team considered many different techniques and decided on the use of "mean distance" between each of the points over the period of 2006-2013.


Why is this important? Supply chain leaders want to deliver excellence. They are searching for an objective measurement that helps them to define "what good looks like." They are a competitive group and want to track their own performance. I believe that supply chain leaders are charged with the delivery of consistent and reliable results at the intersection of operating margin and inventory turns, and most companies are not very reliable.


A Closer Look at Resiliency



Industry performance on resiliency is quite different. As you look at the data, consider how foolish it is to put all industries in a spreadsheet and shake them up. The data sets are quite different in both the mean, the range and the standard deviation. As shown in the data below, the most resilient industries are medical device and consumer packaged goods. And, as shown in our prior reports, the variation in contract manufacturing and third-party logistics providers should be a stay-awake issue for companies worried about corporate risk.


I think that the marked resiliency between Samsung and LG Electronics is due to supply chain excellence. Samsung outperformed LG on operating margin, inventory turns and resiliency; but they are not comparable to P&G. The industry drivers are just too different. I also see it in the data between Stryker and Boston Scientific, Merck and Shire, Walmart and Target; and between Colgate and Unilever. But, I want you to see it also. For more on our analysis of resiliency, please refer to our recent report. Meanwhile, we will continue to define supply chain excellence, one column at a time.


So for readers that are holding your breath waiting for the Gartner Top 25 report in May, I would advocate that you start breathing deeply again, and reconsider the approach. The more that I work with the development of the Supply Chain Index, the more flawed that I can see that the work that I did at Gartner was.... I am embarrassed that I was ever a part of the methodology. I am also convinced that the supply chain leader needs a methodology that is:


  • -Widely Applicable. A methodology that can be applied to ALL publicly held companies. The Gartner Top 25 only looks at the Global 1000.
  • -Industry-specific. A technique that evaluates each industry. I firmly believe that you cannot put all industries in a spreadsheet and shake it up. I think that each industry needs to be evaluated separately.
  • -Longer-Term in Focus. I wanted a view that was  longer-range view than three-four years. My reasoning is that it takes many years to drive true supply chain performance.
  • -Encompassing. More encompassing of metrics beyond the growth, inventory and Return on Assets (ROA) metrics used in the Gartner Top 25. I think that the supply chain leader needs to drive strength, balance and resiliency against a business strategy.
  • -Objective. The Gartner Top 25 ranking has a high percentage of input coming from analysts and peer group rankings. While I do not know what it will be this year, in the past, the analyst ranking and the peer scoring have been 40-50% of the score. As a result, it becomes a popularity contest.


It is for this reason that I will continue my quest. I hope that you will join me to hear about the findings. We will be presenting the overview of the resiliency rankings on our webinar on April 24th and the complete rankings at our Supply Chain Insights conference at the Phoenician on September 9th-11th. If you would like to get the rankings for your company, just drop us a line. We look forward to helping you on your journey. I just think that we need an objective measuring stick.


For my prior views on the Gartner Top 25 and the work on the Index, please check out these posts:

What About the Supply Chain Index

Will Arrogance Stunt your Growth?

What I have Learned Working on the Supply Chain Index

Why I No Longer Believe in the Gartner Top 25

dig·it·al   ňądijitl/adjective

digital (of signals or data) expressed as series of the digits 0 and 1, typically represented by values of a physical quantity such as voltage or magnetic polarization. Relating to, using, or storing data or information in the form of digital signals.

Growth has slowed. Complexity has increased. At least this is the story for consumer packaged goods (CPG) companies  in North America. The complexity of changing product portfolios and the increase in demand-shaping programs (price and promotion) have distorted demand signals and made supply chain planning more complex.


As outlined in my recent Forbes article, the cost to bring a new product to market has increased four-fold in the last five years. The supply chain capabilities to sense market requirements and support new product launch successfully is a gap. There is just too much latency in the traditional order signal to effectively respond at the market cadence. What to do?

Today, 63% of consumer manufacturing organizations have a digital path to purchase initiative. This is a wonderful opportunity to design outside-in processes.


Here are three steps to take:


1) Read Promotion and Price Effectiveness with Minimal Latency. Today, it takes 30 days for the consumer products organization to read the impact of a promotion. This might be sufficient for sales and marketing processes, but for the activities of replenishment, 30 days is too long.  Use downstream data (retailer Point of Sale and warehouse withdrawal data) to build outside-in processes to sense short-term demand requirements and translate them to the supply chain. This is the combination of demand sensing technologies in combination with channel data. Build these processes outside-in. Focus on data synchronization and harmonization.


2) Use New Forms of Analytics to Uncover Unlikely Inferences. Answer the questions that you do not know to ask. Text mining and sentiment analysis can be used to build listening posts to help companies listen to the voice of supply chain. Likewise, cognitive learning engines that use unstructured and structured data can listen and learn from multiple data types to better understand the right assortment in each market, and the reasons driving customer acceptance. (Many of which can be changed with the product launch.) Information from ratings-and-review data can help align the organization to better serve the shopper. Actively work on these initiatives to use the power of analytics to serve the shopper.


3) Test and Learn. Today, consumer products companies can sell in e-commerce channels directly to the shopper. Use these emerging channels to test and learn about the relationship of product attributes to customer attributes. Use test-and-learn strategies (either cross-channel or in vitro market testing) to better serve the shopper. The days of spray and pray are gone. The secret is to carefully design the test-and-learn strategies and to be careful in the execution to accurately read the market.


To do this, companies cannot operate in functions and the processes need to be designed outside-in. Supply chain leaders need to partner with commercial teams to drive a market-driven, not a marketing-driven, response. The key is listening, sensing and adapting to market signals with little latency. This cannot happen with the old inside-out processes. Use these new initiatives to build innovation at the edge and test new forms of analytics and use new forms of data.


For me, this is exciting. It is a wonderful opportunity to build outside-in processes to serve the shopper. What do you think? What do you see as the barriers?


All the best in your journey! Let me know your thoughts.

My journey to understand supply chain Metrics That Matter started three years ago. I was sitting at my kitchen table attempting to write a celebratory book on the 30th anniversary of supply chain management. When I sat down to write the book, Bricks Matter, I believed that companies had used supply chain technologies to reduce operating margin and improve inventory turns. I was surprised to find that I was wrong. What I found was erratic results with many companies going backwards. In fact, I now know that nine out of ten companies are stuck.

My Journey

I want to help. My quest to understand the impact of supply chain processes and technology on corporate performance is now in its third year. We are currently working with Arizona State University (ASU) to use advanced operations research techniques to understand the patterns in our database of 52 supply chain financial ratios for the period of 2006-2013. We are currently mapping the progress of all public manufacturing, distribution and retail companies on three factors:

  • Strength: Year-over-year improvement on operating margin and inventory turns for the past six years
  • Resiliency: The pattern or reliability of results at this intersection of operating margin and inventory turns
  • Balance: The ability to balance a portfolio of metrics to maximize market capitalization and free cash flow


This work will culminate in the launch of the Supply Chain Index in April. The Supply Chain Index will have a numeric rating of all public companies by industry sector for these three factors. They will be equally weighted and coupled with a peer ranking to stack rank corporate performance. I will use these insights to better understand which processes and technologies matter in delivering corporate performance through supply chain management. The early results from the ASU study will be featured in the book Metrics that Matter and it will be the core of the upcoming Supply Chain Global Summit on September 10-11, 2014 in Scottsdale AZ at the Phoenician. (We would love to see you there!)

Capturing the Voice of the Supply Chain Leaders

In this process, I have learned a lot. My journey of sharing these insights with clients has culminated in the writing of my second manuscript, Metrics that Matter. I am on deadline for 99,000 words due on March 1st. My energy is high. To make the book interesting, I have interviewed 60 supply chain leaders to get their insights. I am unsure how many will make it through corporate review cycles (this is a book in itself), but I wanted to give readers a sampling of their responses. In October,  we interviewed Philippe Lambotte, former SVP Supply Chain of Merck and of Kraft Foods, on his thoughts on Supply Chain Metrics that Matter. Philippe is now at Mattel. I love Philippe. He is a great supply chain leader. Here I share his insights:

Philippe, which supply chain metrics do you think matter?

Lora, when I think of metrics, I think of an equilateral triangle: on each corner is a different metric. The corners of the triangle are costs/unit, cash (inventory cycles and working capital), and revenue/growth. In the middle of the triangle is customer service symbolizing the major customer-centric outcome required to balance the three metrics. I think of it as delivering on customer success. I see it as “What do customers think about you?” in transactional and non-transactional interactions. Keeping the triangle sides equal is key to maintain your business in balance while improving your metrics.

How do you balance metrics ? 

It is all in the sequence you improve them and what is your starting point. In the operational management of operations, cost most often gets the first focus. This is the one metric within a manufacturer that  supply chain/logistics organization, manufacturing and procurement organizations are aligned to. They have clear targets and responsibilities to achieve cost targets and missing them have critical implications. My philosophy however is to focus on service first and optimize the costs at a given service level. I believe it is very difficult to be efficient with a mediocre service. It is even more difficult to improve your cost continuously where service is not a stable capability.

Can you improve service and reduce costs simultaneously ? 

Absolutely, it can be done. However, you need to do it with a holistic viewpoint. I encountered situations when cost was overemphasized and reducing transportation costs by filling trucks led to late promotional deliveries, which had a  much more negative impact on our company and our customers. On the opposite, I experienced cases when service trumped any other metric and express and unplanned deliveries became the norm, leading to shipments with negative margins. To find the optimal trade-off, it is critical to involve customers in defining service through their eyes.

What does this mean? For example, if you ship your product through a wholesaler or directly to a physician, the on-time shipment targets should be different. I had an experience where the on-time target was plus/minus four hours for all channels and all customers. When we looked closer, we found our distributors needed complete shipments from us only once per week to synchronize with their other suppliers on-time and optimize their own shipments. However, the  delivery frequency and  on-time expectation of physicians we delivered to directly was  much more stringent: they had no storage space in their practice and were scheduling our shipments in relation to their patient visit, so they needed to work within a few hour delivery window. We learned that by adapting our behavior and metric to customer requirements, we did really obtain the best of all worlds.

After service and cost, what is next ? 

Once you have the right controls on costs and service, the next level of optimization focus is the cash conversion cycle management. Payables is the place to start because it requires mostly work with external partners. Receivables is hard to change because of the market requirements per country. Working capital and inventory optimization together is the Holy Grail of a balanced scorecard because it deals with both internal and customer facing impact.

The more your company has different set of business lines or products, external challenges and customers channels, the more challenging this balance is to achieve. There is no one-size-fits-all.

An example of segmentation in the pharmaceutical industry: vaccine supply chains deal by definition with live cells and require high investments to be successful. They require cold chain distribution, long-term planning, late stage differentiation opportunities and business is done with a high amount of time-bound tenders. As a result, lead time is often long, inventory needs to be preproduced long in advance. Drugs for diabetes, which is a growing health issue in the world, have very different requirements from vaccines: generally more straightforward manufacturing  process, larger volume with ongoing customers and ambient temperature distribution. While metrics are defined similarly for both businesses, the metric trade-offs required to get to the optimal balance in the metric triangle are different.

Another example is in Consumer Goods industry with coffee. Soluble coffee manufacturing is hugely asset intensive with important capital expenditure plant infrastructure. Their high asset utilization is critical to drive fixed cost down. The plant has to run almost continuously, independently of demand. Hence you should be able to work with high inventories since any slowdown of the production line will drive important cost increases at the shelf. Roast and ground coffee on the other side shows a different picture:  manufacturing roasting beans is simpler, less capital-intensive and highly commodity driven at the market level. This means a high promotional environment with fluctuating prices requiring high packaging flexibility and low inventory to be able to react. It implies that asset utilization of manufacturing lines as well as inventory targets should be much lower in roast and ground compared to soluble coffee. One size will not fit both coffee businesses.

Companies that successfully manage segmented supply chains integrated with their business requirements are the ones that are successful.

What derails metric performance? 

I would say Merger & Acquisitions (M&A) and lack of specific focus were the two key derailers I encountered. Getting to best practice in balancing the metrics triangle I mentioned gets even more difficult when step changes occur to greatly modify your business system – such as in Merger and Acquisitions (M&A) times. The companies I worked with, Procter & Gamble, Kraft Foods, and Merck each had specific challenges as they grew through M&A. Key is for companies to maintain good performance of the part of the business that is  already mature to improve the parts of the businesses which are not or need re-engineering.

Secondly, as companies become more complex and larger, the talent and focus get spread over more areas; the tendency is to go for common target and supply chain designs, especially if pressure grows to deliver on synergies and cost reduction. At some point, a company like Kraft used to own biscuits, cheese, pizza, confectionery, beverage, meats… with products delivered to customer directly to stores (DSD), through the customer warehouses or via wholesalers across more than 100 countries. It was extremely challenging to drive one common practice around metrics. Now Kraft is split between a company focused on North America and warehouse delivered products (Kraft Foods Group) and a company mostly focused on Emerging Markets with Snacks with a lot of direct store distribution (Mondelez International). This company split also enabled to segment supply chains and adapt metric targets for the relevant business requirements.

Is there an overriding message needed to keep the metrics that matter healthy ? 

Focus on making your customer successful is a key principle. Beyond delivering On Time and in Full Shipments, retailers measure service often differently – and you need to understand what is key for them. For some retailers it is all about missed sales derived from On-Shelf Availability. For others it is all about In-stock at the back of their store. The ability of a manufacturer to understand what matters to their customers and create a joint partnership focused on improving products for our joint customer – the shopper – needs and wants is critical for success.

I hope that this helps.

To hear more from Philippe, check out:

Presentation at the Supply Chain Insights Global Summit September 2013 (PowerPoint)


Watch Philippe speak at the 2013 Summit (third from top)


Podcasts discussing Metrics That Matter

Lora Cecere

Piece Parts

Posted by Lora Cecere Feb 11, 2014

You have brains in your head, and feet in your shoes. You can steer yourself any direction you choose. You’re on your own and know what you know. And, you are the only one that will decide where to go.

Dr. Seuss

In this blog we are going to focus on the word "part."
By definition it is one of the pieces, sections, qualities, etc., that make or form something.

Merriam-Webster Dictionary

I love Dr. Seuss. When my daughter was six, I would beg her to let me read her another whimsical Dr. Seuss story before she went to bed. It was fun. The words from Seuss would flow from the pages as I held a promising young girl full of life and energy. We laughed at the illustrations. The sing-song words rang through the night air as we turned out the light and said good-night.

Tonight, as I return from a client, I thought that I would start with Seuss to lighten up a bad story.  It is a story of parts. It is a tale of pieces that do not assemble to build the whole. It is 2014. Leaders tell me the real story of monies spent and pennies saved. The consultants and technology vendors tell the stories of small dollars invested and large value gained. The advertisements in the airports boast of great gains. There is a disconnect. I do not see value when I am visiting clients. So I ask myself, “Why?” These leaders are well-equipped. They have brains in their heads and feet in their shoes. They can steer themselves any direction they choose. Why are we not making more progress?

Let’s start with history. We have been at this for at least thirty years. This is not a new topic. ERP was designed to deliver transactional efficiency. It accomplished this goal. It was not designed to be a planning architecture.

At the beginning of the last decade, the promise of the tightly-integrated enterprise was born. Companies invested in tight integration of ERP with supply chain planning (APS). It was a mistake. ERP vendors rushed to provide planning solutions that were less robust than best-of-breed providers. Consultants touted that 80% was good enough. Today, ERP investments have consumed IT budgets. The monies have flowed to the consultants. Today, only 8% of companies are satisfied with their “what-if” capabilities and only 22% of companies can get to cost data in making planning decisions.

Figure 1.

We are stuck. We have not been able to build the planning architectures that effectively let manufacturers plan from the customer’s customer to the supplier’s supplier. As shown in figure 1, the gaps in the value chain network are large. In this blog, let me share some insights based on work with clients and augmented with data from two recent studies that we have just completed at Supply Chain Insights. (We will also be sharing more insight on this topic on our webinar next week.)

The Problem

The goal was to automate the process of planning from the customer’s customer to the supplier’s supplier. However, today, we have pieces that do not fit together to make a whole. Sadly, our architectures are a compilation of piece parts. Most companies have defined enterprise architectures that are inside-out, but lack the ability to take them outside-in. The focus is on the enterprise not the value network.

With the investment in transactional systems for order-to-cash and procure-to-plan, many have lost focus on planning. As a result, they are not effectively able to connect to customers and suppliers. We have talked about it for a long time, but we are not making much progress.

The Dilemma. How We Got Here.

-Outsourcing Is Growing. It Is Here to Stay. It Is Growing More Important. In the study of 63 manufacturers, the average company has outsourced 49% of logistics and 30% of manufacturing. Physically, the supply chain is becoming a network. Logically it is not. Companies are more dependent on each other and there is less excess capacity. It is more brittle and less flexible. Upstream companies have systemically pushed costs and waste backwards on suppliers. While EDI is used to share transactional data, and progress has been made in this area, the software of choice to share plans is an excel spreadsheets. Yes, we have brains in our heads and feet in our shoes, but we communicate most of the important information about the supply chain in an Excel spreadsheet? Does this make sense? I do not think so. I spoke to one client last week that gets 13,000 spreadsheets from one customer that has 72 manufacturing plants with changes two to three times a day. After these discussions, I am amazed that we have made as much progress as we have.

-Nine out of Ten Companies are Stuck at the Intersection of Operating Margin and Inventory Turns. We have automated the enterprise, and 90% of companies have a supply chain organization, and have implemented supply chain planning. Most have multiple systems, but lack a clear understanding of planning architectures. New forms of analytics and cloud-based solutions are emerging, but companies are not clear how to use them. There are a number of science projects. Current investments are enterprise focused. They do not focus on automating the value network.

I am convinced that the greatest opportunity to unstick the supply chain lies in the value network. We have got to break the cycle of pushing costs and waste backwards in the supply chain and paying a higher price for materials. Modern procurement practices have lengthened payables by 30 days and made it almost impossible to have a true relationship.

-ERP Was to Be the  Solution. We have naively gone down this path. ERP vendors were to build the architectures to extend the enterprise to their trading partners. It has not happened. As shown in Figure 2, connectivity of planning information with trading partners for third-party logistics, transportation and material suppliers is important to companies, and supply chain leaders have lost confidence that this gap can be closed by an ERP vendor. The investment in supply chain planning is growing by 55% in 2014, yet 56% of supply chain leaders report that it is focused on the work with their strategic vendors which are most often the ERP provider.  The selection of IT solutions is typically a joint decision where IT is involved 80% of the time and the line of business leaders are involved 85% of the time. This just does not make sense to me.

-Supply Chain Business Networks Are New and Promising; Yet Only Represent 7% of the Flow. Today, there are a number of cloud-based supply chain planning solutions and new forms of business networks that offer both applications and communities to facilitate these planning flows; however, the awareness of these by line-of-business supply chain leaders is low and the ability to get funding for these projects is tough because most of the corporate funding is locked into ERP programs.

Where Do We Go from Here? What Do We Do About It?

Supply chain leaders have brains in their heads and feet in their shoes. Only they can direct what they do. They need to act. Ownership of the extended value chain is more important to drive differentiation and improve Corporate Social Responsibility initiatives. What steps to take?

  1. Get clear on a planning road map. Put the parts together to make the whole. Build a multi-year road map.
  2. Recognize the reality. Stabilize ERP investments. Recognize them for what they are. You need them as a planning system of record and to automate transactions. The gap in current state to automate the value network is real.
  3. Take ownership for the signal that you are sending your suppliers.
  4. Partner with emerging cloud-based solutions and business network technologies to connect the extended value chain.

Today, there is no perfect solution. However, the path that we are going down is not closing the gap. It reminds me of the old saying of
“no matter how far you have gone down the wrong road, that when you realize that it is the wrong road, turn back.”

I would love to hear your thoughts. What do you think?

For additional writing on ERP and supply chain planning check out the blog posts:
End of the Fairy Tale, Part I

End of the Fairy Tale, Part II

Dancing with a White Elephant

New shoes feel awkward. Blisters appear. Feet hurt. The shoes are worn for short periods. Often we shelve them to allow our feet to recover. However, over time, they slowly feel comfortable. They become a part of our wardrobe.


Learning to speak a new language is similar. Conversations are strained. Mistakes are made. Pauses are awkward. Confusion reigns. Communication is stilted. It takes time. Slowly the words take definition in everyday speech.


Nine out of ten supply chains are stuck. Growth has slowed. Complexity has increased. Companies are stuck at the intersection of inventory turns and operating margin. They are unable to drive improvements in both. The secret to unsticking the supply chain is to redesign processes to be outside-in. The supply chain processes need to be designed from the market back.


This a step change, not an evolution. Why? Most companies have designed supply-centric processes from the inside-out. The first step to making the shift is learning a new language.

Step Up and Learn the Language of Demand

In companies, there is no standard model for demand processes. It is evolving. New forms of analytics make new capabilities possible. In the traditional organization, some demand processes are sales-driven. Others are marketing-driven. However, sales-driven and marketing-driven processes are quite different from market-driven processes. <In fact, so much so that I wrote a book about it.>


Unfortunately, companies have invested money in traditional forecasting processes believing that if they make the forecast better that corporate performance will improve. Improving forecasting is not sufficient. It is about much more than conventional forecasting. While we need forecasting and we need to improve the processes, we also need to teach teams how to use new forms of demand data and adopt demand processes.


Why is this important? Supply chain leaders are fluent in the language of supply. They don’t know the language of demand. To become demand driven (or market driven), they need to learn how to speak a new language. In this process, they slowly learn that the customer order is a poor representation of demand.

Tonight, I am stuck at a New York airport in a snow storm. I have been at client’s for the last two days helping them to make this transition. So tonight, instead of making snow angels, I thought I would help readers to get started in speaking the language of demand.

New Terms to Know

The concepts of demand driven are now vogue. Many supply chain consultants will quickly rattle off case studies and proof points, but the smart supply chain leader will ground the discussion with clear definitions. Let’s start with these:

  • Demand Sensing: The reduction of time to sense purchase and channel takeaway. Demand sensing is a process, automated by technology, that reduces demand latency.
  • Demand Latency: The latency of demand signal due to demand translation of a customer purchase through the supply chain to an order for a trading partner. The time is different in each supply chain based on product sales velocity and the technologies used. For example, in a hospital, it is the translation of usage in a procedure to hospital order to a distributor and the translation of that usage to an order for a manufacturer. This time lapse varies by product and by channel. For the purchase of Tide at Walmart to translate to an order at P&G, the time is 5-7 days. For the translation of a purchase of Aleve at a retail outlet store to Bayer, the manufacturer is 60 days. As the long tail (small orders shipped with low-frequency) of the supply chain grows, demand latency increases and there is a greater need for demand sensing technologies.
  • Independent Demand. The purchase of a product by a customer in the channel.
  • Dependent Demand. The translation of this demand signal from a channel demand signal to a manufacturer or a distributor through a bill of material or a transportation or manufacturing routing.
  • Demand Translation. The translation of demand by role within the organization. Each role–customer service, sales, procurement, manufacturing–have a different need/definition for the demand signal.
  • Demand Shaping. The use of demand tactics –price, sales incentives, marketing programs, new product launch, promotions, and assortment– to increase baseline forecasting.
  • Demand Shifting. The shifting of demand from one period to another (examples include pre-shipments at the end of the quarter, stuffing the channel to get rid of stock, or shipping early) increases supply chain costs and distorts the demand signal. Try to minimize demand shifting and maximize the value of demand shaping. Get clear on the difference.
  • Forecastability. The mathematical determination of ease of forecasting (the determination of the probability of demand).  Many technologies include this in the base software package.
  • Forecast Value-Add (FVA): A methodology for continuous improvement of the demand plan where steps of the process are evaluated and the question is asked, “Did this change improve the forecast (bias and error) as compared to the naive forecast?” (For more on this topic check out the book, The Business Forecasting Deal.)
  • Naive Forecast. The historic forecast using prior month shipments.
  • Downstream Data: Use of channel data (Point of Sale (POS) and Warehouse Withdrawal) to sense channel demand.
  • Demand Synchronization. The demand signal must be connected from node to node in the supply chain and then synchronized and mapped. The most frequently mapped data elements are product hierarchies, time/calendars, and locations. In this mapping, the data granularity and frequency must be harmonized.
  • Demand Visibility. The translation of demand by role across the organization and across tiers and nodes of the supply chain.
  • Demand Consumption. The translation of the demand signal across planning horizons. In early planning products this was accomplished through rules-based consumption. New and more advanced technologies are using optimization and cognitive learning techniques to consume the forecast across planning horizons.
  • Integration. Close coupling of the data elements to use the data into software. Integration without synchronization and harmonization does little for the demand signal.
  • Harmonization. Data harmonization enables data of differing granularity and data structures to be harmonized into a common database.


Did I miss any? Just let me know.


And, please let me know if you have any great tips to share for the application of these concepts.


Also, if you want to practice speaking the language of demand face-to-face, it looks like I may be at the Marriott Airport Hotel in LaGuardia for a loooong time.  Flights are canceled for at least 48 hours. Look for me at the bar….

  Irony: the use of words to convey a meaning that is the opposite of its literal meaning.

Source: Dictionary.com



Do you remember Horton, the good-natured African elephant, in Horton Hatches the Egg? Mayzie, an irresponsible bird, asked Horton to sit on her egg while she took a short "break." To make a long story short: Mayzie permanently relocates to Palm Beach leaving Horton, the elephant, sitting in a tree attempting to hatch an egg.


Naturally, the absurd sight of an elephant sitting atop a tree makes quite a stir in the community. As Horton braves the elements, he is laughed at by his jungle friends, captured by hunters, forced to endure a terrible sea voyage, and is finally placed in a traveling circus. However, despite his hardships and Mayzie's clear intent not to return, Horton perseveres. He refuses to leave the nest insisting that he keep his word. He often repeats, "I meant what I said, and I said what I meant. An elephant's faithful, one hundred per cent!"


As luck would have it, the traveling circus ends up visiting near Mayzie's new Palm Beach home. Mayzie visits the circus just as the egg is hatching and demands that Horton return it, without offering him a reward. However, when the egg hatches, the creature that emerges is an "elephant-bird," a cross between Horton and Mayzie, and Horton and the baby are returned happily to the jungle, rewarding Horton for his persistence, while Mayzie is punished for her laziness by ending up with nothing.




So, a reader might ask, "Why a treatise from Lora on Horton on this week?" I like stories. To me this one is a metaphor for what I see today. For many companies the supply chain is a function; but the supply chain leader is also asked to be the owner of value chains. They attempt to nurture and design the value chain to deliver the greatest value. However, due to the many functional organizational agendas, the supply chain leader is often left sitting alone on the branch attempting to drive value for the greatest good. The point of my story? We have to persevere.


As I sit at my kitchen table as an entrepreneur, working with many of my clients' supply chains at the end of the year, I am struck by a number of supply chain ironies. These are the ones that I see today:

  • Cash Can Travel Faster Today, but Payment Is Slower. I can now transfer funds in hours, but the average Days of Payables for a manufacturer has increased 30 days over the last decade. (It varies by company, but has increased by 28 for Procter & Gamble, 53 days for Nestle, and 64 days for Bristol Myers Squibb.) Only a few companies have partnered with their suppliers to move money more quickly. This includes BASF that has reduced the number of days by 20 and Coca-Cola that has reduced the number of days by ten. Most companies are pushing costs and waste backwards in their supply chain. Unfortunately, the transactional nature of companies to focus on short-term transactional benefits, blinds their ability to see the impact on their suppliers. Many companies will have to start seeing suppliers fail before they wake up.
  • Large Companies Can Scale, but Not Start Up. Small Companies can Start Up, but Not Scale. Large Companies Could Lend a Hand, but They Don't. Large companies are power brokers in the supply chain. They usually have a lower cost of capital. Many could fund their supply chains more cheaply than their suppliers going to the bank to get commercial terms. Yet, the buyer and seller arrangement for a small software company trying to do co-development with a large company is very one-sided. I watch large company after large company KILL the promise of innovation. In my opinion, co-development partnerships need to be defined as much more than a buyer and seller transaction.
  • Customer Service Is Everywhere, but NOWHERE. During this holiday season, as I sit on the phone waiting for a "customer service agent," I think that supply chain leaders everywhere should rethink customer service.  As seen by the growth of Zappos and Audi,  it matters. As I wrangle my way through the maze of auto-response systems and Indian-based Business Process Outsourced Services, I wonder who ever leaves these calls thinking that they are designed to give the customer service.
  • Companies Say Customer First, But Can They Listen? As I work with clients on their 2014 agendas, many espouse a customer-centric supply chain, but they are hesitant to build listening capabilities. While marketing and sales are traditionally about yelling the message, a customer-centric supply chain starts with the customer and judges the supply chain by its ability to serve. And, how can we serve the customer if we cannot listen? I am amazed how slowly supply chain teams are adopting sentiment analysis for unstructured text mining to listen to the true voice of the customer.  When companies can listen directly through the mining of unstructured data, they can hear quality issues... and five times faster.
  • Technologies Should Improve the Experience.  What About a Real Person? Last week, I paid my mortgage. The check was a manual check written for $2500.00, but it was read as $25.00 through the automated reader. If I was not watching my online banking, I would have ended up with  late charge and a ding against my credit. Sometimes, I think that we get so caught up in the mechanics of technology automation that we forget we are real people doing real business with real people.


Dealing with Mayzie


So, if the Supply Chain Leader is Horton in this story, who is Mayzie?  In my opinion, Mayzie is the group that is focused on short-term benefit. It is the team or function that wants to work opportunistically to drive short-term gain for the firm while negating the longer-term value that can be driven through a value chain. Like Horton in the book, many supply chain leaders are left defending the original promise of improving value. So, as you sit on that branch questioning what is happening, remember Horton when he said,  "I meant what I said, and I said what I meant. An elephant's faithful, one hundred per cent!" The supply chain leader must buck current trends and stay true to the original mission of driving value.


These are the ironies that I see.  Did I miss any? Let me know.  And, hopefully, you are not caught in a snafu of your own where your check is misread, the call is placed on hold and the automated "customer service" technology cannot understand your accent.

Lora Cecere

Be Part of the Solution

Posted by Lora Cecere Dec 9, 2013

Nine out of ten companies are stuck. They are not stuck in a good way like a label to a case. And, it is not in a minor way, like food on a plate that cannot be easily removed for the dishwasher. Instead, they are stuck in a way that cannot easily be undone. It is like gum on your shoe or a car in a snow storm.


Henry Ford once said, "If I had asked my customers what they wanted, they would have said, a faster horse." There is a reason why manless vehicles are being innovated by Google, and not Ford. It is the same reason that Amazon and Tesla are growing rapidly. It is about new and differentiated business models. The shift requires holistic thinking.


I was talking to a client yesterday about the evolution of technologies for the extended supply chain. She stated, "We are having the same conversation over and over again. I left supply chain and went to Europe for four years, and thought it would change. But, guess what? It is the same conversation. We are not making progress." My sentiment is the same.


Today, I want you to imagine what our world could look like if we had an effective extended supply chain.


What Would This Look like?

The ends of the supply chain are weak. Supply chain leaders are in the middle. Yet, we are asking the transactional buyers and sellers of goods and services to plot the path forward for value chains. I think that this is a mistake. The vision is too limited.


The new vision will not come from sales talking to procurement buyers. Please let me repeat, "The ends of the supply chain are weak." They are too functional in orientation. Buyers and sellers are focused on transactional enablement. Customer Relationship Management (CRM) and Supplier Relationship Management (SRM) systems were not designed to connect the end-to-end value chain.


Instead, it needs to be driven by someone who can orchestrate and design end-to-end, from the customer back, based on channel consumption. Only 1% of companies have someone in this role. Only 1/3 of companies have a supply chain center of excellence and 50% of these companies feel that it is successful. The reason is that supply chain has now been defined as another function. As such, it becomes part of the problem, not part of the solution.


Be Part of the Solution:

Take five actions to become part of the solution, not the problem:


1) Analyze and design supply chain processes outside-in. Focus on market-driven, not sales-driven, processes to enable your moments of truth in the channel.  Design the processes to use channel data with a focus on decreasing demand latency. I posted a slide deck on slideshare yesterday that outlines the current state of connectivity. I find it sad that after four decades of working with EDI we are where only 1/3 of orders can move hands-free in our systems.


2) Change the reward systems to measure and manage the supply chain as a complex system. Align incentives to focus jointly, and across the organization, on revenue, margin, inventory turns, and customer service improvement.


3) Build strong horizontal processes. Move supply chain from a functional orientation to an enabler of horizontal processes. The key horizontal processes are revenue management, sales and operations planning, supplier development, and corporate social responsibility.


4) Actively design the network. I find it ironic that companies would never implement a manufacturing site without intensive design. However, most companies inherit the supply chain and do not question the design. A challenge for most companies is understanding the design levers.


5) Redesign the ends of the supply chain. Actively work on improving connectivity and recognize the need to harmonize and synchronize partner data.  The term integration is too simplistic. Learn how to use multiple data streams in planning.


Do you think that I missed anything in my analysis?  Please let me know.


Happy holidays to you and your team. We hope that you like the gift that we will send you this week.

I have traveled 12,000 miles recently. When I get off a plane, I am accosted by the signs at airports around the world. SAP touts "best-run companies" while the Accenture ads claim "high-performance supply chains."


As I shuffle along, I am not sure. I shake my head. I am a nomad, searching for a good definition of supply chain excellence. It is a quest and the subject of my next book, Metrics That Matter, which will publish in September, 2014.


Why Does It Matter?


Supply chain leaders are naturally competitive, and they want to know how well they are doing.  Similarly, organizations want to see how they measure up. They want to understand which practices and technologies make a difference. I think that this is unanswered. It is for this reason that we started the work on the Supply Chain Index.


Most readers of this blog know how I feel about the Gartner Top 25. It was a good starting point, but it has not matured. I just do not think that you can put companies in a spreadsheet and shake them up.  A chemical company just should not be compared to a high-tech company using this methodology. It is biased towards companies that DO NOT have assets. I am searching for something that can be meaningful across industries and across company sizes. It is for this reason that I started the work on the Supply Chain Index.


Current State:


What is The Supply Chain Index? It  is a formulaic representation of supply chain excellence based on market capitalization. Over the course of the last eighteen months, we have attempted to build a linear regression model to build a formula using supply chain ratios that can predict market capitalization. We used the period of 2006 to 2012 to build the model and we used the formula to attempt to predict 2013. The result is outlined in figure 1.


Figure 1.


We came close, as the reader can see in figure 1, to building a predictive model for household and personal care (CPG), medical care (hospitals) and discount stores (mass merchants).  But, we have failed to build a predictive model for the rest of the industries. However, we are not done. This week I am finalizing an agreement with Arizona State University to fund a PhD student in statistics under the guidance of George Runger to try to finish the work.


What Now?


When you are doing research you have starts and stops and turns. We have spent the last eighteen months charting the intersections of companies on the Supply Chain Effective Frontier to understand growth, profitability, cycles, and complexity.  We have found that nine out of ten organizations are stuck on their ability to make improvements on both operating margin and inventory turns in the same year. However, the research has taught us a lot.  Here we share some insights.


What did we learn? Overall, supply chain leaders deliver results that have strength (year-over-year performance improvements), balance (a set of balanced metrics within a portfolio) and resilience (predictable and reliable results with few swings). You can see it in the patterns. Let's look at this more closely:


Figure 2.

1) Strength: Continuous year-over-year improvements on the Effective Frontier based on a well-defined Supply Chain Strategy.  Not every company wants to make the same trade-offs of growth, profitability, working capital cycles, and complexity. However, leaders make these choices consciously showing year-over-year improvements while laggards lose ground.  Let's take the example of Colgate, Procter & Gamble, and Unilever in figure 2. Colgate is making a conscious choice to drive profitability. (There is no company that I have studied that has been as successful in driving year-over-year profitability as Colgate.) And recently, Procter & Gamble is more focused on improving inventory turns. Both P&G and Colgate are more resilient than Unilever. In the past four years, Unilever made progress in inventory turns, but then lost ground on both the management of inventory and improvement in margin.

2) Balance: The right balance of supply chain financial ratios to improve market capitalization.  If we take the formula that we developed for the Supply Chain Index, which is a linear regression of supply chain financial ratios that is correlated to market capitalization (as shown in table 1), we find that P&G has the best balance of the financial ratios.


Table 1.


3) Resiliency: A tight, positive pattern at the intersection of inventory turns and operating margin. In the BASF and DuPont case study below, BASF is more resilient than DuPont. Notice the wild swings in the DuPont trajectory. BASF has a more consistent, and focused, supply chain strategy. DuPont has implemented many Information Technology systems, but few well.


Figure 3.


We believe that strength, balance and resiliency are important components of a high-performing supply chain organization. We hope that you agree.  So, what are our next steps on this methodology?

1) Strength. We will give each public company a measurement on ability to drive year-over year performance of the factors on the effective frontier.

2) Balance. We will finish the work on the Supply Chain Index with Arizona State and rank the companies within industry peer groups based on a balance of the metrics against market capitalization. Our date to finish this work is March.

3) Resiliency. We will also work with ASU to measure the trajectory of resilience of results at the intersection of inventory turns and operating margin for the last 12 years. We will translate this into a measurement of resiliency.


In the writing of the book, Metrics That Matter, we will rank companies by SIC code based on these three factors, and share the insights of supply chain leaders on the management of supply chain metrics over the last decade. The chapters will be rich with case studies.


We will then place the rankings on these three factors into our community and allow supply chain leaders (one per company) to vote. The final stack ranking of supply chain excellence will be rated equally on the four factors of strength, balance, resiliency, and peer feedback. We will share this data at our Supply Chain Insights Global Summit to be held in Scottsdale, AZ on September 10-11, 2014.


I would love your thoughts. Check out the prior blog posts on the development of the Supply Chain Index to read for perspective:

Will Arrogance Stunt Your Growth?

Why I No Longer Believe in the Gartner Top 25

What I have Learned Working on the Supply Chain Index

Talk does not Cook the Rice

Lora Cecere


Posted by Lora Cecere Nov 8, 2013

Rcently, I wrote about the evolution of supply chain planning. In my blog post, I commented on HOW little supply chain planning has  changed in its twenty-year evolution. As I worked with clients this week, I had a long and hard talk with myself. I am part of the problem. I, like other analysts, are stuck in the traditional software APS paradigm.

In this post, I want to pay homage to trailblazers. This post is a commentary to companies that are challenging the traditional Advanced Planning System (APS) paradigms and trying to forge a new path.  As a start-up, I understand how hard it is to pave a new road forward. Here I share insights on four enterprise solutions. (Next week, I will focus on the new forms of business networks that are evolving.)


1) Kinaxis. The Kinaxis solution is probably one of the most misunderstood supply chain planning platforms. With its origins in “fast MRP”, the company has gone through multiple name changes to establish an identity and gain market traction.  It is a flexible, in-memory model and platform that enables visibility, demand and supply balancing, what-if analysis, allocation and available-to-promise (ATP) functionality. Throwing APS tradition to the wind, Kinaxis branded under the term “rapid response” five years ago and has recently been pushing the promise of the Supply Chain Control Tower.


In leaving the Kinaxis user meeting, I was struck by three things.  First, their recent work on mobility and defining the user experience on a mobile application is very cool. Secondly, the flexibility of the Kinaxis solution makes the product hard to message, but the clients that have figured it out, are very happy.  (Some of the happiest….) And, third, the solution is most often deployed in material-intensive supply chains for what-if simulation and visibility. It is a cloud-based solution that scales easily for hundreds of users. It has helped many clients that were too constrained by the inflexibility of the traditional APS platform.


At the conference, Kinexions, I heard many clients speaking freely about the deployment of Kinaxis and the turning-off of Oracle and SAP APS solutions.  Many were almost giddy. The ease-of-use of the Kinaxis system was freeing for their teams.


2) Logility. I like the work that Logility has done in the redefinition of demand planning. Their work on New Product Profiler (a product to forecast a new product) and on attribute-based planning termed Proportional Profile Planning is very encouraging. It should be considered by all Logility customers struggling with demand accuracy in new product launch and promotion management.


3) Solvoyo. This week, I also spent time in Istanbul discussing the evolution of concurrent planning with some of the best minds in supply chain operations research.  Many of you may recall the great work that Koray Dugan and Omer Bakkalbasi did at i2 Technologies.  They are now teamed together working on the development of concurrent planning.


Essentially, the team is removing the partitions between network design, sales and operations planning (S&OP), inventory optimization, fulfillment and transportation planning. Originally, supply chain planning had to be compartmentalized to enable optimization solvers to run within a feasible timeframe. However, with the advent of cloud computing and more advanced optimization techniques, the team at Solvoyo is using parallel processing in the cloud at Amazon to provide decisions on demand (Software as Service that delivers the output and decisions integrating with the client’s existing software). As a result, the solution is solving inventory, transportation, and fulfillment in one model across strategic, tactical, operational, and executional horizons.  Is this important? Yes for three reasons…. The depth of the solution, a more scalable solution, and the bringing of the decisions on demand helps companies that are struggling to get and retain talent.


Inventory problems solved in isolation have had little adoption. Inventory needs to be part of a deeper, more connected solution. The Solvoyo technologies allow users to evaluate the form and function of inventory in network design and connect it to fulfillment and transportation planning. For an old gal in supply chain planning, I love seeing a new definition of supply chain planning.


4) Terra Technology. Terra Technology has dubbed its solution demand sensing and with twenty consumer goods companies using the solution, the company is attempting to gain new clients in distribution-centric industries that are not consumer goods (e.g. distribution, chemical processing. food manufacturing and apparel). The solution replaces rules-based forecast consumption improving the translation of demand from a tactical forecast to a more useable and accurate demand signal for fulfillment. Companies using the Terra solution are averaging a 10% reduction in inventory on the balance sheet and an improvement in customer service fulfillment. However, despite seven years of product marketing, the company is still not well understood by prospects requiring ongoing dialogues with the buyers.


While the replacement of rules-based demand consumption, may seem like a small thing, the impact is significant, and the math has not been matched by the several want-a-be competitors that have tried….


Each of these companies have attempted to blaze a new trail in their own way. They are fighting bigger competitors that have done less platform innovation that charge much more for their solutions, but are more aggressive in marketing. Additionally, the higher costs of the extended ERP solutions makes them much more desirable for large system integrators to implement and recommend.


As I sit in seat 16C on a packed plane winging my way to Minneapolis, I just wanted to raise my glass and applaud the innovators. Hopefully, you will check them out too….

Today, I launched the The Supply Chain Shaman's Journal. The Journal will be published quarterly, and will be a collection of posts from the Supply Chain Shaman blog. Each Journal is centered around a theme.


It published today in PDF format, and will be released later as an ePub on the Apple iBookstore, and as a .mobi for Kindles on Amazon.  In the meantime it can be downloaded  as a .pdf from the Supply Chain Insights Journal page. Using the link, you can also sign up for future issues as they become available.


In January, 2014 the Shaman's blog will be four-years old. How time flies...


One of the problems with a blog is that as it becomes bigger, it becomes more and more difficult for the reader to access old posts. And, as many of you know, I like to pound a keyboard. I have posted 1-2 articles a week for over four years. I wanted to make access to the content easier. So, the design of the Journal is meant to enable readers access what I have written here in an easily digestible format.


The inaugural issue focuses on Sales and Operations (S&OP) planning and features 23 select articles on the subject.


The Journal will publish quarterly.  Each will be a collection of blog posts on a new theme. The winter edition will feature articles on Supply Chain Organizational Design, and the spring edition will focus on the Metrics that Matter. Even though it is copyrighted, consistent with our mission, it is being released today with social sharing in mind, and under the principle of Open Content research. We just feel that content should not be locked behind a paywall. Read it, share it and enjoy!


We welcome your feedback!

Last week on my way to Frankfurt, I uploaded software files while over the Atlantic ocean using Lufthansa's WI-FI service. I was able to work, and be effectively connected to my office, all the way to Europe. As I uploaded a 5 meg file to Slide Share somewhere over England, I smiled.


Similarly, tonight, as I write this blog post, country music is blaring from my iPhone. It is based on MP3 files. Over my lifetime, I have successfully transcended the music experience from records, to tapes, to digital files. The music experience today is far more portable and enjoyable than the days of vinyl. While I still hold onto my Beatles and Rolling Stones records, it is mainly for nostalgia. They are no longer played...


I also smiled this weekend as I unpacked boxes from my recent move.  I held my old, well-worn Road Atlas fondly. At one time, it was very important in my life. I have the uncanny ability to get lost every time I turn. There were notes from trips twenty-years ago with my young daughter that is now thirty in the margins. I reminisced about the days when you plotted the trip with yellow markers and called ahead for a hotel room. Over my lifetime, I have moved from a paper-based Atlas, to MapQuest, to a satellite-based Garmin, and now to an iPhone. With each transition, my life got easier.


I recently attended SAPICS in South Africa. A speaker on robotics spoke on the potential impact of robotics and manless vehicles to reduce logistics costs by 40%. We see the constant evolution in the warehouse with robotics, voice and automated vehicles, so why not planning?


So, as I sat in my seat 5D and crossed the Atlantic, I asked myself the question, "Why have supply chain planning technologies not been reinvented through technology evolution in a similar manner?" By and large, companies are unhappy with the user experience of supply chain planning and feel that the system output is too difficult to use.


So, why has there not been a step change? In the words of Rick Sather, Kimberly Clark, "Why is there not an app for that?"   Here is my answer:

  • Incentives: The market incentives are aligned to sell traditional software. Consultants are incented to sell traditional enterprise software. Companies are risk averse and consultants want to sell the software that gives them the greatest margin.  The technology evolution reduces the margin for ecosystem. This surprises many. During the week, I had a long conversation with a good friend that moved from a manufacturing role to a consulting role and has now decided to move to a supply chain role in a distribution company. She was shocked at the level and amount of kick-backs made to consulting companies to sell traditional software.
  • Consolidation: As the software matured, the market consolidated. Most of the energy of the software providers was focused on platform migration and the protection of maintenance revenues. The protection of maintenance revenues is a deterrent for technology innovation. I know of no software company that has successfully migrated their product platform to new technology.  In my decade of serving the industry as an analyst, each time that a company attempts to innovate on a new platform, they are pulled back by user enhancements and the need to protect license revenues.
  • History. The supply chain planning space has a legacy of long and expensive sales cycles with large payouts to the enterprise sales team. The deals are carefully planned and the battles are artfully waged. Sales teams have made large sums of money. The movement to cloud computing and mobility reduces the cost of software and changes the business model. No longer are sales teams able to generate the size of deals and the commission checks of yesteryear.
  • Sex and Fifty Shades of Gray. The software for supply chain planning is just not as sexy in the eyes of venture capitalists. Most of the money has poured into social and marketing technologies that are aligned to drive corporate growth. Supply chain problems require an enterprise-class solution that works. For many this is just not exciting.


So, as I write this, I am encouraged to be working with several new start-ups that want to change this picture. They are enjoying the challenge of creating cloud-based optimization solutions and new forms of visualization and analytics for mobile devices. They are poking holes in the old Advanced Planning Footprints of the 1990s and asking me to help them design it differently. They understand that the movement to the tightly integrated ERP footprint was a step back for the industry. Their interest is in building effective business networks that can sense and adapt using new techniques.


Shouldn't it be this way? Shouldn't technology evolution improve the experience? We shouldn't start with process. Instead, we need to ask how the process could be improved with new forms of technology? Don't we need to admit that the supply chain planning today is largely legacy, and that like the Atlas that I carefully packed away, that it is also needs to be shelved?


So, what can you do to change this?


1) Encourage innovation. Work with small and innovative solutions and open up the world of opportunities.

2) Push existing technology providers to also drive innovation in a meaningful way. Challenge them to think about problems differently.


I look forward to getting your thoughts and writing about these new forms of analytics as they evolve. But, tonight, as I recover from my jetlag and tap my foot to my blaring country music, I think that I will just toddle off to bed and dream about the world that could be.

The healthcare provider network is fragmented. As the power shifted from the supplier to the healthcare provider, over the last decade, the healthcare provider responded. The hospital built a supply chain organization that is now viewed as stronger than that of its suppliers. Today, providers of healthcare self-assess that they are more successful meeting their goals than the supplier.


The supplier, or healthcare manufacturer (pharmaceutical or medical device) in the healthcare value chain is three times larger than the provider. They have four times the profits. However, in our recent study on healthcare, the supplier rates themselves 15% less successful than healthcare providers in their ability to deliver on their supply chain goals.



Here are the highlights from our recent study:

1) Rising Complexity. Nearly two-thirds of manufacturers are offshoring to reduce costs. They have longer more complex supply chains, but rate themselves low on their ability to plan demand and manage a network.


2) Enterprise Alignment. Only 1/3 of suppliers feel that they can effectively integrate their supply chain and sales processes within their own organization. This is a barrier to forming a successful value network.


3) End-To-End Focus not in Sight for Suppliers. Two out of five manufacturers report that they have someone responsible for the end-to-end supply chain. For the supplier, the focus to move from a supply chain to build a value network is just starting. To focus on the patient, there needs to be a value-chain focus.


4) Stalled Progress on Inventory and Cash-To-Cash Cycles. While hospitals have improved inventory turns by pushing the responsibility backwards onto the supplier, in the last decade, there has been no improvement in cash-to-cash and inventory cycles for the value network. Each party self-assesses their capabilities in demand, supply and network planning at a very low level.  There is a need for both parties to step up and improve capabilities.



So, in the absence of supply chain leadership, the government will step in to try to heal the healthcare value chain. What they will find is:


1) Value Analysis and Supplier Collaboration Programs by Hospitals Just Starting. Over 70% of healthcare providers now have value analysis programs. They are being used to evaluate new products and services. Sixty-seven percent of companies rate them effective in meeting the goals of managing costs, determining physician preferences and reducing infection rates. However, most of the processes are not about VALUE; instead, they are about cost mitigation. There is a need to align value-based outcomes to serve the patient. The toughest nut to crack is the incentive systems.


2) Business Model Innovation Needed. Unlike other industries, no company in the healthcare value chain has stepped forward to use power to drive business model innovation (E.g. like Wal-Mart in retail or Intel in the semiconductor industry) to significantly improve the end-to-end value chain. This is an opportunity for a company like Eli Lilly or Nova Nordisk. Both of these companies actively provide medications to diabetic patients. The movement to patient sensing and monitoring and direct delivery of services to the patient through better communication and monitoring for the physician is now within our grasp at a technology level. The greater barriers lie in the building of systems and effective networks for patient delivery.  The most movement is with CVS and Walgreens.


3) Lack of Alignment on Outcomes. Regulations, taxation and talent are the top three challenges for manufacturers while the top three challenges for providers are costs, inventory, and contract management. Sadly, the patient does not make the list. We are a long way from a focus on value-based outcomes to serve the patient.


If I had a magic wand, what I would like to see happen is:


1) A redesign from the Patient back with a Focus on Wellness. I would like to see us rethink the value network and the delivery systems to focus end-to-end. Since, we are facing government intervention, perhaps a tax credit for big pharma and medical device companies to invest in innovation to use the Internet of Things to focus on real-time patient monitoring to improve wellness?


2) Investment by Manufacturers in Supply Chain Planning. It is hard for companies that have high profit margins to focus on supply chain planning to improve costs, inventories and customer service. With the rise in complexity, it is time for manufacturers to get to work to close the gap between themselves and the other manufacturing industries. Perhaps an audit system on supply chain excellence to get reimbursement levels?


3) Data Sharing on Usage. The management of goods throughout the channel and the sharing of downstream data in a meaningful way can streamline the entire value network. The redesign of these systems outside-in could dramatically reduce costs and improve service.


4) Eliminate Rebates. The healthcare value network has the most antiquated and ineffective system for rebate management. The waste and time spent trying to manage bifurcated trade should be eliminated.


5) Building of Strong Networks for Case Management. I like what GHX is doing on the building of an inter-enterprise system of record for case management for scheduling a patient and the management/tracking of use in the operating room. I would love to see this type of approach be more widely adopted.


What are your thoughts?


For more on the study, please check it out at Insights on Building Effective Value Networks.

One of the favorite parts of my job is teaching classes on how to take supply chain concepts to the next level to improve corporate performance.


I love helping people to see supply chain concepts differently. One of the ideas that I am researching and sharing is the concept of building Market-Driven Value Networks. The concepts of being market-driven build on the research that I have done for the last ten years on building Demand-Driven Value Networks (DDVN).

The vision is aspirational and takes the concepts of being demand driven to a next level. To ensure clarity in this post, let’s start with definitions. I define DDVN as:


Demand-Driven Value Networks: A network that senses demand with minimal latency to drive a near real-time response to improve  demand shaping and demand translation.


And, a Market-Driven Value Network as:


Market-Driven Value Networks: An adaptive network focused on the delivery of value-based outcomes. It  senses, translates, and orchestrates market changes (buy- and sell-side markets) bidirectionally with near real-time  latency to align sell, deliver, make and sourcing functions. It builds on the concepts of becoming demand driven.



These are a step change in thinking. Both move the supply chain design from inside-out to outside-in. Traditional supply chains respond, but they do not sense. The processes and architectures that we built over the last thirty years delivered inflexible processes that take too long to respond. These legacy processes amplify and distort market signals putting the supply chain on the “back foot.”  As demand and supply volatility increases, the sensing and translation of network shifts is importance to corporate performance. Nine out of ten companies are stuck. They are unable to drive growth, maximize profitability and minimize cycles. More and more, companies are realizing that effective value networks drive GROWTH. No longer should the supply chain be thought of as just a cost center to manage.


As I teach the class, I learn too. Here I share these insights and recommendations to the readers of this blog on how to get started.


My Lessons Learned


Supply chain practices are steeped in belief statements that there are “best practices” and that the “order is the best representation of demand.”  As we build supply chain strategies in the class, I work with attendees to first answer the questions in the green box to design the strategy:

  • What are the right ways to support the business strategy?
  • What are the right trade-offs between the value drivers for each value network?


Time after time, I find that companies are left with lofty business strategies that are not translated into actionable plans for the organization. I also find that there are too few business strategy consultants that understand the need for this translation. Most companies struggle with this activity. I find most are in a quite a mess.


The next step is to answer the questions on how to define demand and supply relationships to deliver on the promise of supply chain value networks.  The activity starts at the end of the supply chain in the definition of demand and supply relationships. It cannot be effective from the inside-out.


Companies are not good at demand. The gulf between commercial and supply chain teams needs to be closed. For most, the building of demand relationships is a new concept.  It is often the first time that attendees to the class have thought about the frequency, availability and cleanliness of demand data. We then work together through activities to gain an understanding of demand synchronization, harmonization and translation. The goal is to make channel data useful by the corporation.


In parallel, the design of supplier relationships to maximize value is a ripe area for discussion. Only 22% of companies are actively managing the end-to-end value chain to deliver on corporate sustainability goals. We discuss the principles of supplier development and how companies shift from punitive practices, where costs and waste are pushed backwards in the value chain, to owning the extended supply chain to deliver on the brand promise.


Most supply chain professionals have spent their time at the center of the supply chain and have not thought about the options and the design of the ends of the supply chain enough. The center is strong and inflexible and the ends are weak.


After answering the questions in the white boxes, companies can then define the process. It should be then, and only then that the business processes can be defined. Process needs to follow strategy. When this happens, there is greater balance between metric trade-offs and resiliency in year-over-year improvements in corporate performance.




Many companies do not know where to start. And, we try to be clear in the course that the starting point is in improving reliability. The Market-driven Value Network visions need to have both “big wings and big feet.” The feet are grounded in reliability. When given the choice between reliability and shorter cycles, the supply chain leader needs to choose consistency and reliability. This includes consistency in manufacturing operations, order-to-cash processes, and customer service. The wings are defined in a clear year-over-year strategy to enable evolution towards a vision.  Here is how you start:


  • Stabilize ERP Investments. I believe that ERP is important to improve transactional accuracy and cycle efficiency. You simply cannot have an effective supply chain without it, but I recommend that companies do it ONCE and do it WELL Avoid ERP bells and whistles. It is important that companies do not become hostages to long, multi-year ERP rollouts.  It is too big of an opportunity cost for the organization. In addition, the promise of extended ERP is not worth the trip. The gap in capabilities between best of breed supply chain planning applications and those from ERP providers is growing. When given a choice, implement the base modules for ERP and do it well. Side-step the planning and analytic offerings.
  • Actively Invest in Cloud-based Analytics for Self-service by the Line of Business User. Today, companies cannot get to data. The multiple ERP instances and the tie of analytics only to ERP projects, leaves the company unable to get data from a heterogeneous IT landscape. The advancements of in-memory, cloud-based analytics like Qlikview in combination with visualization technologies like Spotfire and Tableau.
  • Redefine Demand.  Start by recognizing that the order is a poor representation of “true demand.” Start by asking for demand data by channel partners and then build systems to synchronize and harmonize channel demand data with new forms of analytics to recognize patterns. (Technologies to synchronize and harmonize demand data are sold by vendors like Orchestro, RSI, Retail Solutions, Retail Velocity, and Teradata.) Redefine demand planning to model what the company is “going to sell” and take advantage of the new attribute-based modeling capabilities from vendors like Logility and SAS, and demand translation capabilities (E.g. replace rules-based consumption logic) with solutions from Terra Technology. After taking these steps, invest in building cognitive learning engines and implement test and learn capabilities with technologies from Applied Predictive Technologies (APT), IBM and Enterra Solutions. These learning engines allow companies to sense, learn and then act.
  • Build Strong Horizontal Processes with a focus on Orchestration. I describe orchestration in the blog posts  Just You and Me Dude and in the second post Bait and Switch. The important horizontal processes are Revenue Management, Sales and Operations Planning, Corporate Social Responsibility and Supplier Development. Build strong what-if capabilities through systems like Kinaxis and Steelwedge.
  • Invest in Business Networks and Inter-Enterprise Systems of Record. We are on the cusp of building effective business networks. There is a strong need for inter-enterprise systems of record. I do not think that this will happen through the repurposing of indirect procurement networks (E.g. SAP’s redefinition of Ariba). Instead, I think that this will happen through the evolution of industry-specific business networks.  I am busy researching the business network evolution of GHX for Healthcare, E2Open for high-tech, Elemica for the Chemical Industry, Exostar for Aerospace and Defense, the redefinition of Covisint for the Automotive Industry, and GT Nexus for Apparel and Distribution Intensive industries. What is old is new again. I describe this in the post Emperor’s New Clothes.


What do you think? I would love to hear your voice.


We know that companies are busy, and that it is hard to go to conferences and keep track of all the changes in the technologies. In our training, we try to build it down and combine the research with experiential exercises. If you are interested in having your teams participate in the training, and learn the concepts, check out our training options.

Lora Cecere

Why It Matters

Posted by Lora Cecere Oct 2, 2013

As I work with companies, I often contrast the strategies, approaches and outcomes within a peer group. Over the last five years, I have helped two companies, Sonoco Products and Owens Illinois (OI) with their selection of technologies to improve Sales and Operations (S&OP) planning. Both companies provide packaging materials to the food manufacturing industry. Owens Illinois provides glass products and Sonoco Products provides flexible packaging. Here I contrast their results.


Six years ago, Owens Illinois' primary question was IT standardization versus the choice of best-of-breed vendor. The decision was a political tug of war. Waring factions undermined progress on business process. IT and the business teams were not aligned. They were unclear on their supply chain strategy and the role of supply chain planning. Complexity reigned in the business and they were unsure how to manage it.


Figure 1.


Sonoco Products, on the other hand, had a clear objective to maximize asset utilization while improving customer service for strategic customers. Their goal was to visualize excess capacity and make it available to enable their sales teams to offer upstream opportunities to their clients. It was their way of "shaping demand."


As a supplier three to four levels back in the supply chain, life as a packaging provider is tough. Demand is volatile, price is competitive and complexity reigns. Food manufacturers, over the course of the last decade, have pushed costs and waste backwards in the supply chain. Products have proliferated by 37% over the last five years and packaging suppliers are being asked to provide more and more innovation to help the food manufacturers bring new products to the market.


Figure 2.


The companies are similar in size. Sonoco Products is a $4.5 billion dollar company, located in the southern portion of the United States. Their journey to be more market driven with a strong focus on Sales and Operations Planning (S&OP) is now seven years old. Owens Illinois (OI), a $6.3 billion company, manufactures glass containers with headquarters in the midwest. OI has been more focused on transactional efficiency, procurement and IT standardization.


As I write the new book, Metrics That Matter, I am studying the patterns of corporate performance based on choices in supply chain program execution. A company that is effectively working a supply chain strategy will have a nice, neat pattern at the intersection of operating margin and inventory turns. A company that is not balanced will tend to have a pattern that oscillates with no real trend towards improvement.


Figure 3.


Contrast the patterns of the two companies in figure 2. Owens Illinois oscillates with little predictability. While Sonoco Products is losing margin (in large part due to a tough market), they are making improvements in inventory turns. The pattern is much more reliable and they are executing a growth strategy.

So, what can we learn?


A Marathon, Not a Sprint. The story of supply chain excellence cannot be told in  one year snapshots. It cannot be accurately represented by studying two years, or even three. It requires a study of the patterns over a five to ten year period. Supply chain leaders deliver reliability and resiliency in the results.


Conscious Choice.  The journey is about conscious choice and leadership. It cannot be about singular metrics. Instead, it is about managing the trade-offs and improving supply chain potential. The supply chain needs to be managed as a complex system to drive continuous improvement against the supply chain strategy.


The Focus Needs to Be End-to-End. I am teaching a number of workshops this month with well-intended clients that have defined supply chain as a limited function of distribution, manufacturing and procurement. They will make limited progress unless they can redefine their initiatives to cross over and define their go-to-market strategies.


S&OP Matters. Sales and Operations planning done right (focus on the management of the supply chain to maximize opportunity and mitigate risk end-to-end) improves organizational alignment and agility, and improves operational resiliency.


Don't Waste Your Time on the Wrong Battles. The discussion of which system is less important than moving forward with a system. The supply chain as a complex system cannot be effectively modeled on a spreadsheet. The political arguments of IT standardization often result in one function winning the battle while the company loses the war.


What do you think? Do you have a story to share on the implementation of supply chain strategy? I would love to hear it.

Chutzpah: A personal confidence or courage that allows someone to do or say things that may seem shocking to others

Merriam Webster


If you are fluent in Yiddish, you know chutzpah, meaning nerve, is akin to the Spanish word "cojones" meaning courage, but without an anatomical context as in tener cojones.


So, as I sit in this uncomfortable seat, fighting sleep, winging my way to Chicago, I am asking myself a simple set of questions. My circular logic goes like this.  The supply chain world is dominated by men. Men have cojones. So, why is it that in this male-dominated world of supply chain there is very little chutzpah?


In short, I think that it is because we want to please. Commercial teams are paid to sell. Marketing teams have an agenda to increase market share. The supply chain team takes and ships orders. Everyone claims that they care about the customer, but the system is ineffective.


Figure 1.


The supply chain team with chutzpah has courage. They build the end-to-end value chain outside-in and align commercial and operational strategies. They focus on improving value to the customer. Those without any chutzpah define the "supply chain" as an organizational function that focuses only on distribution, manufacturing and procurement. The later definition fits most organizations that I see.


So, how do you increase your chutzpah? Here is my five step plan:

1) Help Commercial and Business Leaders to See the Supply Chain as a Complex System. Many supply chain teams have aggressively cut costs to fund an organization's growth. Sometimes, in this process, they have cut muscle, not just fat, limiting the potential of the supply chain to balance costs, inventory cycles and complexity. I work with an organization that is using Llamasoft's mobile Sherpa application in the S&OP meetings. When the commercial team makes one of those eye-rolling, off-the-wall requests, the team quickly shows the group the impact of this hairy, audacious go-to-market plan on the base business.  They then say, "We can do that, but here is the impact." And, of course, the commercial team quickly sees the relative importance of their request. The visualization of the impact to the commercial teams on base business helps to drive alignment. Without the visualization, the commercial teams see the supply chain team as a bunch of whiners. This approach lets the commercial teams actively participate in the decision.


While 37% of companies have a Supply Chain Center of Excellence, most define it too narrowly.  Only half of the Centers of Excellence meet the expectations. The Center of Excellence is successful when it SERVES the business. It fails when it becomes ACADEMIC. The most success happens when the supply chain Center of Excellence is built with a goal in mind of building cross-functional alignment. Use the work in the Center of Excellence to help drive the cross-functional understanding of the supply chain as a complex system, and facilitate a cross-functional understanding of trade-offs. When the Center of Excellence is defined to drive alignment there is 3x greater alignment between the finance and marketing teams.


2) Say Yes and Mean it!  The supply chain team is pressured to say "Yes" to commercial plans. However, trouble brews in Dodge City when the promise cannot be delivered due to reliability issues.  When given the choice between fast and reliable, chose reliable. Actively design the supply chain to say "Yes" and mean it.


3) Challenge the Status Quo. Last week, I was with a client that is working with SAP to run their supply chain planning system, SAP APO, on SAP's HANA platform. I asked them "Why?" They looked surprised. I believe that there are many wonderful uses for HANA like visibility across multiple ERP instances, but I question on why to continue to invest Advanced Planning System (APS) logic, like APO? The basic footprint of APS was defined when planning was constrained by 32-bit architectures. Computing power has increased 100X since the 1990s, but the definition of APS remains unchanged. I think that our new opportunity lies in redefining planning not just making old approaches faster. The supply chain team with chutzpah asks hard questions.


4) Build Supply Chain Potential. I recently interviewed Daniel Weber, leader of the Beiersdorf supply chain team for the Supply Chain Insights Podcast Series Straight Talk with Supply Chain Insights.  Listen carefully to Daniel's story as he shares how he used the need to improve customer service as the means to convince the company to REDUCE inventory. This starts with the belief that you can improve the potential of this complex system called supply chain to both improve customer service while reducing inventory.


Similarly, I love the results of Hershey and the work of Jason Reiman's team.  Check out Hershey's impressive results in figure 2, and give Jason a "Congratulations!" on his new promotion to Vice President.


Jason and Daniel have both increased the potential in their supply chain to manage trade-offs. Many, unfortunately, just do not believe that this can be done.


Figure 2.


5) Build Muscle at the Core and Innovation at the Edge.  The supply chain leader with chutzpah has the courage to invest in new technologies for the supply chain. They actively lead efforts to test and learn through new forms of analytics. They understand that there are no "best practices" that come out of a software box; instead, they realize that they have to learn from others to tailor processes to fit their needs based on a clear supply chain strategy.


So, what do you think? Do you think it is appropriate for me to ask for my family to lay me to rest on a small grassy knoll at my farm underneath a small marker that says, "Here lies Lora Cecere. A small-town girl with lots of chutzpah?"


You needn't send me your replies on this one.

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